One of the biggest obstacles many home buyers face is the ability to fund closing costs. Closing costs typically account for approximately 5% to 6% of the price of the home. With a minimum down payment of 3.5%, using FHA guidelines as an example, a buyer of a $100,000 home must have funds of approximately $9,500 – a down payment of $3,500 and approximate closing costs of $6,000 order to seal the deal.

Along comes was is known as a seller assist, also known as seller concessions. A seller assist is a feature of many loan programs that is used to help a buyer pay for a portion of their closing costs. It becomes a debit to the seller and a credit to the buyer at the closing table.

Each loan type has it’s own specific guidelines as to how much assistance from the seller is allowed:

SELLER ASSIST LIMITS

LOAN TYPE	MAX ASSIST
FHA	6%
Conventional – 3% To 9% Down	3%
Conventional – 10% Or More Down	6%
Investor Loan	2%

A seller assist is usually requested as part of the original contract offer, but it is common to see seller concessions requested or increased during home inspection negotiations to cover repair costs. The amount of the assist can not exceed the allowable closing costs as determined by the lender. If the case arises where allowable closing costs are less than the negotiated assist amount the seller pockets the difference.

A seller assist is a great feature that allows the seller to pay some or all of your eligible closing costs. In a market where sellers find it difficult to sell their home, a seller assist can be an attractive lure to a prospective buyer.

Let’s use an example of a purchase price of $200,000 and a 6% seller assist with a FHA loan. The sale price of the home will be recorded as $212,000 and the seller will credit the buyer 6%, $12,000, at the settlement table. Thus the sellers net proceeds will be $200,000. The buyer finances the assist amount by adding it to the mortgage loan. Yes it will cost the buyer a bit extra each month to finance the assist amount over the life of the loan, but an assist is often the only way the buyer can purchase the property.

If a seller assist is part of the transaction the total purchase price, including the seller assist, must have enough value to justify the sale price. The price of the home must appraise with the seller assist included. In the past it was common practice to add the assist to the price of the home and “bump up” the sale price to cover the assist, but that practice now can raise a red flag during the appraisal process.

A seller assist can also be utilized to purchase mortgage discount points. This is where the seller assist is used to buy down the interest rate. This is useful for many first time home buyers because the lower rate helps reduce their monthly mortgage payment and allows them to stretch their buying power.

Seller Assist In The Wallingford Market

In the Wallingford market a seller assist was recorded in 43% of transactions in 2016, 91 out of 214 sales recorded a seller assist, with a total of $620,178 in seller concessions granted. Seller assist amounts ranged from $200 to $25,000, with an average assist of $6,815.

Wallingford PA Real Estate – Wallingford, PA 19086

When your lender quotes you an interest rate that is not the final rate that you need to agree to. Through the use of what is known as mortgage discount points you can lower your mortgage interest rate.

Discount points are a type of prepaid interest. You pay your lender an upfront fee at closing for a lower interest rate. One point amounts to 1% of the loan amount. So 1 point on a $200,000 mortgage would equal $2,000.

The primary purpose of buying discount points is to reduce your interest rate and conversely lower your monthly payment. Typically a point usually amounts to an interest rate reduction of 0.25%. This can also be referred to as buying down the rate on a mortgage.

For example, with a 30-year, $200,000 loan at an interest rate of 4%, you would pay $954.83 in mortgage payments a month, not including taxes and insurance. Paying 1 point at 0.25% per point would lower the interest rate to 3.75% and drop the monthly payment to $926.23. This would entail an upfront cost of $2,000 to buy those points at closing. It would take just under 6 years in this scenario to recoup the cost of the point, after that you would begin to save money on a monthly basis.

The length of time you intend to live in your new home is a big factor in deciding whether or not to buy points. If your plans are to remain in your home only for several years paying for points will probably not make financial sense. However if you believe you will remain in your home an extended period, it can make financial sense to pay points to obtain a lower interest rate.

Another consideration regarding points, since they are a form of interest, is that they are usually 100% tax-deductible during the tax year you purchase your home. If you are in a higher tax bracket you may find this deduction offsets the cost of buying points from the start.

Wallingford PA Real Estate – Wallingford, PA 19086